Cowdery’s Resolution Vs The Insurers: Time To Play Hard To Get?

By Vladimir Guevarra

Here’s a thought. How coy should a company be if it’s being targeted by a prospective buyer like Clive Cowdery‘s Resolution?

Resolution today said it is on track with its two, to four-year plan to buy three companies and have the merged entity listed on the stock exchange.[Read the story.]

Cowdery, the insurance entrepreneur/industry consolidator, has said Resolution will next target something bigger than its first buy, the 177-year-old insurer Friends Provident.

Friends was valued at £1.86 billion when Resolution bought it in August. That price represented a 30% premium on the share price, ahead of it being reported in the media in mid-July.

Since that purchase, Resolution has given itself around 15 more months to buy two more firms. That’s a pretty tall order. Even for the determined consolidator, Cowdery.

Going for something bigger would leave just a few names – if Cowdery is looking at buying a FTSE100 life insurer. In ascending order and based on market capitalisation, those would be Standard Life (£4.94 billion), Legal & General (£5 billion), Old Mutual (£5.98 billion), Aviva (£11.2 billion) and Prudential (£15.5 billion).

Outside the FTSE100, another target could be Lloyds Banking Group’s Scottish Widows and Clerical Medical, two insurance companies which are being combined to form a single sales force.

The problem is that most of these companies shudder at the thought that they are potential targets for Cowdery. (In public at least.) With some being more vocal than others.

Their more benign arguments centre on how their UK businesses are not for sale or that they’re “very strategic” or part of their group’s “core business”. The more stringent ones say they already have the consolidated business which Cowdery dreams of creating.

Another argument comes from Legal & General CEO Tim Breedon, who said: “There are economies of scale to be had in this business. Consolidation isn’t the way to get there.”

Breedon said he prefers organic growth and warned that mergers among insurers are difficult, partly “because these insurance contracts are long term, they are different, individuals have slightly different rights and there’s a very expensive court process attached to these things”.

Still, analysts who are pro-consolidation say mergers and cost synergies, though admittedly difficult to execute, are still achievable. And to be sure, many of the existing UK insurers are themselves products of rounds of mergers and consolidation in the past.

So, what now? Are the insurers going to up the ante in fending off approaches from Resolution?

Looking at the tit-for-tat exchanges between Resolution and Friends Provident four months ago, one would think it’s just a matter of time before Resolution bags another insurer.

Or to the more cynical, it’s just a matter of money.

So how coy should a target company be? If you’re coy enough to get an offer which is 30% higher than your share price, you’re probably doing the right thing.

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